Darling tax rises to leave us ‘worse off than in 1997’

The Institute for Fiscal Studies found that hikes in tax and National Insurance from 2011 will mean the average household has 3.52 per cent less cash than in the first year of Tony Blair's government.

The figures emerged today after the Chancellor himself warned that the measures announced last week may not be enough to kick-start the economy and prevent a slowdown from becoming a slump.

A key plank of the recovery plan, a 2.5 per cent cut in VAT , comes into force today amid fears that it will fail to get shoppers spending again.
Retailers have been scrambling to complete changes to their pricing systems ahead of the reduction of VAT to 15 per cent.

A number of major retailers, including the big supermarkets, have already passed on the reduction in the sales tax to customers but the majority of shops are thought to have held off until today.

Mr Darling announced in the pre-Budget report that the Government was reducing the rate of VAT for 13 months in a bid to stimulate the economy.
It is estimated that the change will cost the Treasury around £12.5 billion, while it will save the average earner about £170 a year.

But retailers will face a £300 million bill over the coming two years as a result of the reduction as they have to change price tags and accountancy systems.

There was good news for Mr Darling, however, when Royal Bank of Scotland announced it would give homeowners six months' breathing space if they fall behind with mortgage payments.

RBS, in which the taxpayer now has a 58 per cent stake, said that it would wait to take repossession proceedings until customers were in arrears for half a year.

Mr Darling told The Observer that more measures would be required in future months to help the economy recover — including legislation in the Queen's Speech next week to ensure banks resume lending. "You'd be very foolish indeed to say, Well, that's the job done.' You know this is something that needs constant attention," he said.
"We've got the Budget next year; we've got the pre-Budget report in 12 months' time, the Budget after that.
"I put more money into the reserve on Monday precisely because I know that we're almost certainly going to be doing additional things. The people expect you to do that.
"You know they are getting something from the Government," he said of the banks.
"They have to realise that the taxpayer's going to get something in return."